Member Info for Meconopsis

Just to clarify. My post is NOT "advice". Which is a dangerous word :)

Balkwill66 - Christofer's reply is perfectly valid. This post is to offer some alternative points of view. Neither post is right nor wrong.

Five points:

1. The key question is what has changed in the company from when you bought it?

I bought a company 18 months ago where the stated strategy wasnt' what was executed and I didn't understand the numbers any more. So I sold for a 20% loss*.

I'm currently sat on a -10% loss* on an investment where nothing has changed since I bought it - it's just that the market doesn't like it. I can be patient (see number 5).

My BDEV investment was -16%* last year and now sits at +30% against my base investment. Things change (see number 5).

2. You say you're £3k down, but does that include the dividends you've received. At the end of last year I did an exercise in looking at my investment positions dividend reinvested/taken. It's good to understand your actual position.

3. Is the amount you're down "material" to you? If you're likely to have a need for the money in the near term then you're better off selling than waiting it out.

4. Can you clearly see a better alternative for investing your money?

5. Which brings me on to Charlie Munger (Warren Buffet's right hand man) - “The big money is not in the buying and selling,” he said, “but in the waiting.”

Remember that, if you sell, you don't have to sell all of your holding :)

Best wishes.

* For those of you thinking - "Why should I listen to someone with this track record of loss?!" - I just want to say that I win more than I lose. I'm also a great believer in Warren Buffet's "hamburger" principle whilst being paid to wait for stuff to come good.

Apologies londoner7 - text from the site below.

Very few UK companies have a “moat” and none of the house builders. Even Apple was only classified as having a narrow moat - although I think that’s now been revised.

The text…

The Morningstar Economic Moat Rating represents a company’s competitive advantage. An economic moat helps a company fend off competition and earn high returns on capital for many years to come.

Morningstar identified five sources that build and widen a moat:

1. Switching costs are obstacles that keep customers from changing between products, like from one company’s product to a competitor’s.

2. Network effects occur when the value of a good or service increases for both new and existing users as more people use it.

3. Intangible assets are things such as patents, government licenses, and brand identity that keep a company ahead and competitors at bay.

4. A company with a cost advantage can produce goods or services at a lower cost, allowing it to undercut its competitors or achieve higher profitability.

5. Efficient scale benefits companies operating in a market that only supports one or a few competitors, limiting rivalry.

If we can expect a company’s competitive advantage to last more than 20 years, we consider it as having a wide moat. If it can fend off rivals for 10 years, it has a narrow moat. If a competitive advantage doesn’t exist or may prove fleeting, there’s no moat.

When searching for undervalued companies, those with narrow or wide economic moats often offer attractive return potential. The Morningstar Economic Moat Rating can help you identify those companies to provide superior long-term returns.

Morningstar’s most definitions - https://www.morningstar.com/stocks/morningstar-economic-moat-rating-3

Their definitions require a company to be able to fend off competitors for 10 years to have a moat.

From th RNS…

“ We recognise the importance of returns for our shareholders and our Capital Allocation Policy, established in 2022, seeks to balance cash returns to our shareholders with investment in the business for future growth. For 2023, the Board proposes a final dividend of 40p per share to be paid on

12 July 2024 to shareholders on the register at 21 June 2024, following shareholder approval at the AGM. This dividend is in addition to the interim dividend of 20p per share, paid in November 2023, to give a total dividend per share of 60p in respect of financial year 2023. The Board's intention is to at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit.”

It HAS NOT been cut. Look at the Financial Highlights section of the RNS and look at Dividendmax.

The 20p in November was for THIS financial year. The previous 60p was for the LAST financial year.

Dividendmax is - certainly now - saying 40p.

From Apple News - https://stocks.apple.com/AbYFLmCpMS36TVPSquUWE6w

Persimmon Earnings: Shares Remain Materially Undervalued Despite Tepid 2024 Cyclical Recovery

While the cyclical recovery of Persimmon’s earnings is underway, the rebound in earnings in 2024 is shaping up to be more gradual than we’d previously forecast. Sales activity is improving, but at a more modest pace than we’d previously anticipated, thereby pointing to a softer second-half performance for Persimmon than reflected in our 2024 estimates. Year to date, the weekly private home sales rate on Persimmon’s development sites is ahead of last year—at 0.59 homes per active sales outlet in the first 10 weeks of 2024. While encouraging, the improvement is modest relative to 0.54 homes per active outlet in the prior corresponding period and likely holding back second-half volumes. In response to the more modest improvement in homebuyer appetite, Persimmon has—similar to its peers—continued with the use of sales incentives in 2024, which will restrain the extent to which profit margins recover in 2024, further holding back the near-term recovery in earnings for the no-moat homebuilder.

Persimmon delivered 9,922 home completions in 2023, aligning with our forecast for a 33% year-on-year decline in volumes in the face of decidedly downbeat UK housing market conditions. Consequently, full-year EBIT of GBP 355 million contracted 65% year on year and also tracked about 6% soft relative to our forecast as second-half build costs proved less favorable than we’d previously expected.

We expect to lower our 2024 estimates with Persimmon’s 2024 home completion and profit margin guidance tracking softly relative to our prior expectations, which factored in a swifter return of homebuyer confidence. Persimmon expects to deliver 10,000-10,500 homes in 2024, about 8% below our prior expectations at the midpoint. Still, Persimmon shares remain attractive, trading at a 42% discount to our GBX 2,300 fair value estimate, which we don’t expect to change materially after downwardly revising our 2024 financial estimates.

"I guess you received the same confusing message from DividendMax regarding the 40p?! In the RNS and the related news I read everywhere 60p like last year."

60p total for the year. 20p already paid as interim. 40p to be paid.

“ What was the basic lesson we were taught about investing?

6%+ are value traps, and show no growth.”

Maybe. Or maybe not.

The key question is where 6% comes from and in what interest rate context? In the low interest rate environment we’ve had since 2008 then 6% was probably/maybe about right. But that doesn’t necessarily translate to a higher interest rate environment.

Theory says that stocks need to pay a “risk premium” in terms of overall returns against the base interest rate - usually at least 2-3%.

It’s a fallacy to generalise S&P500 or NASDAQ performance with “the US” - strip the magnificent 7 out of the S&P500 and it hardly moved overall last year - https://www.nasdaq.com/articles/you-might-be-shocked-to-learn-where-the-sp-500-would-be-in-2023-without-the-magnificent

It’s also a fallacy that anll high yielding companies anre necessarily dividend traps. A company is certainly a dividend trap if you can’t see where the dividends are coming from other than capital erosion. But that’s not the case here.

Vodafone? Absolutely. (In my view. I’ve done work there and wouldn’t touch with a barge pole.)

Anyway - ALL - returns are personal. My tech investments have only recently shown a profit over two years after the horror of 2022.

I’m up an annualised 20% on LGEN, but bought when the value was compelling.

Each to their own of course and best wishes for your investments.

"Does anyone think there will be an opportunity to top up here at 220p, or lower here , soon? Or anything below 240"

The general sentiment towards insurers is favourable on the back of good results all around at the moment - with MNG (on Thu) and PHNX (on Fri) next week. PHNX have already released a trading statement setting expectations of a *very* good set of results. If MNG's result are good then you can probably expect a bump here as well.

At the moment, anyone selling workplace pensions is onto a bit of a winner as all those inflation-busting pay rises are (generally) feeding through to higher pension contributions. The high interest rates means sales of annuities have doubled or trebled.

So, unless there's bad economic news or an adverse world event, your chances of 220 probably aren't great before it goes ex-dividend.

I'd have thought that below 240 is eminently possible on a bad general news day - or worse than expected payroll, inflation or job numbers.

And/but, if you have the money then I'd just set a buy limit order at whatever your happy place is.

I have what I call my "Gee Gee company" - it's a company that trades around 50p a share; is thinly traded and, in my view, is hideously undervalued long term. One day someone will over to take over the company at £2. Every time my dividends get reinvested and there's some money left over then I set a limit order in the market for 30 days and walk away. The market makers will usually fulfil the trade eventually - just to have some volume. The purchase is normally around £50-80 each time.

It's my Gee Gee company on the basis that it's a gamble rather than a punt. It's money that other people might punt on the horses and provides some light relief from the more serous business of nursing my SIPP and ISAs.

"Maintaining the dividend which I thought was very positive"

I'm with Krustysmegma. In the current climate I'd prefer the company to preserve capital as Barratt is doing.

MrMath - I largely agree with your correction of my overly simplistic post. I certainly agree that the shares have room for growth - both in terms of a re-rate and also in terms of business expansion.

And/but any reduction of the dividend from current levels is certainly going to drive out a good number of retail holders - and some institutions - who are here for the dividend.

They could go to a “no particular commitment to increase”, which would drive out a few.

“Unless they were on about returning excess capital to share holders.”

They were.

There’s a view that L&G is sat on more capital than it can usefully deploy within the business and the expectation has been that a buyback is more likely than a special dividend or capital return given the share price.

The note in the results was effectively “We hear you, but think that we CAN deploy that capital effectively. But we’ll keep an open mind on capital returns.”

It has nothing to do with the dividend. There is a commitment to increase the dividend until (IIRC) 2024 at a “mid single digit rate” (or something like that). Which has effectively meant 5% a year. They’ve met that commitment.

It doesn’t take an investment genius to spot that any reduction in dividend would decimate the share price.

It’s important to say that when company valuations and share prices are low then it’s generally not good to have lots of spare cash sloshing around as it tends to make you an easy takeover target. One way of looking at L&G is that it has £14bn one the “future profit pot” and £7bn of assets against a £15bn marcap.

Great post tophat.

“ Well, both LGEN and MNG started falling from this point last year. ”

Do remember that Silicon Valley Bank collapsed on 10 March last year and took 20%+ off financial services share prices.

This quote from the Just Group results RNS demonstrates the effect of IFRS17 on operating profit…

“ Adjusted profit before tax2 was £520m (FY 22: Adjusted loss before tax £167m), driven by strong growth in underlying operating profit, positive longevity assumption changes, and economic profits. Of this £520m, £348m of profit is deferred to the CSM4 , leaving an IFRS profit before tax of £172m (FY 22: IFRS loss before tax of £494m).”

LGEN could learn a lot from Aviva and Just Group’s presentation of numbers.

“… do you broadly think the IFRS standards are helpful / an improvement?”

They are helpful for what they are intended for. But not useful as management accounts.

One problem for investors is that they have made EPS and dividend cover numbers almost meaningless. If you look at at the restated 2022 numbers for Aviva you’ll see they made a “loss” - despite being operationally profitable.

"What’s our next divi gonna be ? Another 26p ? More or less?"

I wouldn't be surprised at a big bump given the trading update on 1 Feb. The trend has been a 3% increase per year. I wouldn't be surprised by either a 10%+ or 5% plus a special.

A cut is unthinkable and would decimate the share price.

Anyone else have a view?

To complete the sentence in my long post...

It's worth saying that there is nothing dodgy about management using their own APM. The IFRS numbers aren't great if you're trying to manage the business. They were designed to provide an objective comparison across businesses and provide a view of fundamental value is broken up and liquidated tomorrow.

"...for all i know she might fall under a bus tomorrow or get poached to something much bigger - plenty of organisations would be happy to have her on board at this point."

Agreed. Although the open market share purchase yesterday by both her and (presumably) her husband demonstrates a commitment to stay.

Her renumeration package will already include a good number of shares issued at below market price. To buy additional shares at market price demonstrates a clear belief in and commitment to the company.

Warthog4 - I've not had a detailed look through the financials yet, so just a couple of general observations...

OPERATING PROFIT

You can't directly compare the 2020 results with the 2023 results.

2020's results were compiled under IFRS4, whereby insurance companies could (more or less) immediately recognise profits from the sale of life and annuity products.

2023's results were compiled under IFRS17. The new rules mean that those "profits" get "parked" in a Contractual Service Margin + Risk Adjustment "pot" (CSM+RA). Money goes into the CSM+RA pot until the liability has lapsed and the profit can be drawn down in future years.

The outcome is that this year's operating profit is reduced, but future years will be enhanced.

There's a good explanation in the (very good) results video at https://players.brightcove.net/6204867251001/823mowZpQ_default/index.html?videoId=6348388200112

You want from 14:00 onwards.

There has also been an adverse change in longevity this year, which is nicely explained in the video.

They have restated 2022's results in IFRS17 terms in the 2023 results - and those are directly comparable.

You also need to be careful that you compare like with like.

ASSETS

At first look there appears to be around £1bn of assets less on the books. I haven't had time to work through what I think is going on, but...

The IFRS accounting standards require that held assets are valued at 'market value' when the accounts are produced (you'll see the term "mark to market"). Any reduction in value is taken off the operating profit and the value of the assets reduced on the books.

So, if you've got 2bn of offices; the market for offices drops 20% then you've got to knock £400m off the operating profit and the same £400m off your asset value. Regardless of whether the loss has, or will ever, be realised.

Some of it will be that revaluation.

This is why a company that is profitable in absolute terms can appear to make a "loss" in the accounts.

COMPARING LIKE WITH LIKE

You also need to be a little careful with which "operating profit", etc numbers you compare.

Because of the above accounting requirements, it starts to become extremely difficult to manage a company using the IFRS numbers. As a result, almost all companies now use so called "Alternative Performance Measures" (APMs), which are typically the accounting measures stated in a way excludes the unwanted distortions of IFRS.

At the front of the Aviva results release you'll see a little symbol next to Operating Profit. A quick look at the footnotes on page 9 shows that this is an APM - i.e. management's view of Operating Profit.

The IFRS Operating Profit is further back in the document.

That front section contains a mix of IFRS and non-IFRS numbers, which is almost certainly why they don't add up.

It's worth saying that there is nothing dodgy about management using their own APM. The IFRS numbers aren't great if y